Desperate Times at the NYT

The drama at the New York Times Company just got a lot more
interesting. In the face of declining
revenues and profits, reported thiks week, the company announced
yesterday that it would increase its dividend by almost a third (31%), from
17.5 cents a share to 23 cents a share.

The move smacks of desperation, an effort to prop up a stock
price that has lost more than half its value over the past five years. The
stock price took a jump when trading opened this morning, but has since lost almost
half of that initial gain.

The company's announcement contains some very interesting language:

"The strong cash flow of the Company and our current financial position, with
the upcoming sale of our broadcast unit and radio station, give us the ability to return more capital to
shareholders. Recognizing that the media marketplace is in the midst of an
extraordinary transformation, we will continue to exercise strong financial
discipline as we execute on our business strategy and allocate capital. We
value our shareholders' support and continue to be focused on improved performance."

Some companies, for example certain tanker operators, return
capital to their shareholders when they enjoy strong earnings above the need
for reinvestment in continuing operations. But ordinarily, returning capital to
shareholders is regarded as a slow motion liquidation.

For the year 2006, the New York Times Company reported a net loss of over half a billion dollars,
or $3.76 per share. A write-off of $843 million dollars on its ill-conceived purchase
of the Boston Globe and other New England media properties was partially offset by a
capital gain on the sale of its television station group. The net result is
that while continuing operations do continue to be profitable and generate
cash, the downward trendline has not
been reversed. The company shows no signs of increasing prosperity, only
decline.

As analyzed at American
Thinker, the strategy employed by the company to counter the declining
fortunes of its print media is not panning out. Internet advertising revenues
are growing far slower than they need to, in order to balance out the declines
in print.

What this all boils down to is: the company is slowly
liquidating itself, as it in fact admits with the telltale phrase "return more capital to
shareholders." Pinch Sulzberger is in effect admitting that he cannot use
the company's capital as effectively as shareholders could for themselves.
Considering how he squandered capital on the Boston Globe, and how he paid over four hundred million dollars for
About.com, a company which earned just over $6.5 million last year (a rate of
return of about 1.6% a year on its investment) and which is growing only 23.4%
a year and faces considerable business risk, this is a refreshing and valuable
admission.

Despite the rosy tone of the company's
verbiage ("strong cash flow"), Standard & Poor's isn't fooled. It has announced
that

The dividend increase is being made
"at a time when the financial profile is currently weak for the
rating," S&P said in a statement.

"In addition, ongoing challenges within the
operating environment have affected year-to-date operating performance, and the
company has a heavy near-term capital expenditure plan," S&P said.

S&P rates the New York Times' senior unsecured
debt "BBB-plus," the third lowest investment grade rating.

If S&P lowers the debt rating two notches,
as
Moody's did a year ago, then the Times debt will be one step above junk
bond rating.

The Times will hold its shareholder
meeting at the New Amsterdam Theatre in New
York City at the end of this month. It should be quite
a spectacle. The company's pre-emptive return of capital to shareholders will
buy it some time with angry holders. But it is not a sign of health.

Thomas Lifson is editor and publisher of
American Thinker, where this article first appeared. He holds an MBA from Harvard Business School, awarded "with
high distinction."

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